What prepayment privileges let you do
Prepayment privileges let you make extra payments toward your mortgage principal without penalty. Most lenders offer them, but the limits vary — some allow up to 15% of your original mortgage amount per year, others go up to 20%.
Here's what you'll typically see:
15% prepayment privileges (First National, Strive Capital, Scotia Bank, TD): - Pay up to 15% of the original principal balance on any payment date - Double your monthly payments on any payment date - For fixed-rate mortgages, increase your payment by 15% once per year
20% prepayment privileges (ATB, RFA, CMLS, MCAP, Servus, CWB): - Pay up to 20% of the original principal balance on any payment date - Double your monthly payments on any payment date - For fixed-rate mortgages, increase your payment by 20% once per year
Always confirm the details with your lender — terms and limits can change.
Why this matters: interest savings and time
Using your prepayment privileges gives you two big wins. First, you reduce the amount of interest you'll pay over the life of the mortgage because you're paying down the principal faster. Second, you shorten the term — extra payments chip away at the balance, which can shave years off your mortgage.
Let's look at what that actually means in dollars and time.
Scenario 1: Making annual lump sum payments
Say you have a $500,000 mortgage at 5% interest with a 25-year term. Your monthly payment is about $2,908.
Option A: 15% prepayment privilege (First National, Strive Capital, Scotia Bank, TD)
You decide to make an extra lump sum payment of $75,000 (15% of $500,000) once a year for the first three years.
Impact: - You could save over $100,000 in interest over the life of the mortgage. - You could reduce your term by around 8 years, finishing in 17 years instead of 25.
Option B: 20% prepayment privilege (ATB, RFA, CMLS, MCAP, Servus, CWB)
With a 20% prepayment privilege, you could pay $100,000 (20% of $500,000) each year for three years.
Impact: - You could save over $140,000 in interest. - You could reduce your mortgage term by almost 10 years, paying it off in approximately 15 years.
Scenario 2: Doubling your monthly payments
If making large lump-sum payments isn't feasible, many lenders let you double your monthly payments. Using the same $500,000 mortgage at 5% with a 25-year term, your monthly payment is about $2,908.
By doubling it to $5,816, here's what happens:
Impact: - You could save more than $150,000 in interest over the life of the mortgage. - You could pay it off in just over 12 years instead of 25.
This option is powerful if you can swing it — it drastically cuts both the term and the interest.
Scenario 3: Increasing your payment once per year
For fixed-rate mortgages, many lenders let you increase your regular payment once per year by a set percentage — 15% or 20%, depending on the lender. Same mortgage: $500,000 at 5% with a 25-year term and a monthly payment of about $2,908.
Option A: 15% annual increase (First National, Strive Capital, Scotia Bank, TD)
If you increase your monthly payment by 15%, your new payment would be $3,344.
Impact: - You could save over $60,000 in interest. - You could shorten your mortgage by approximately 4 years.
Option B: 20% annual increase (ATB, RFA, CMLS, MCAP, Servus, CWB)
With a 20% increase, your new monthly payment would be $3,490.
Impact: - You could save over $80,000 in interest. - You could pay off your mortgage in around 20 years instead of 25, shaving off 5 years.
What you can do with this
Using your prepayment privileges is one of the most effective ways to reduce the cost and length of your mortgage without overhauling your finances. Even small adjustments — like increasing your payments by 15% or 20% — can result in significant savings over time. You're not only reducing your debt faster but also building equity in your home more quickly.
Pull out your mortgage paperwork or call your lender to confirm what prepayment options you have. Then decide what works for your cash flow — a lump sum once a year, a modest payment bump, or doubling up when you can. The savings are real, and they add up.
